Advanced Financial Accounting (AFA) : Assignment

Running head: ADVANCED FINANCIAL ACCOUNTING
Advanced Financial Accounting
Name of the Student:
Name of the University:
Author Note

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Table of Contents
Answer to Part A.............................................................................................................................2
Answer to Part B..............................................................................................................................3
Answer to Part c...............................................................................................................................5
Answer to Part D.............................................................................................................................6
References........................................................................................................................................7

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Answer to Part A
The issue that has been presented in the question refers to the fact that the adoption of the
International Financial reporting Standards by the listed entities have led to the enjoying of the
certain benefits that have resulted in the improvement of the quality of the financial report. This
means that the accounting standards had been established for the purpose of establishing the fact
that the corporate entities have prepared the accounting statements for the ease of the third party
investors and the other stakeholders of business. The improvement of the quality of the
accounting statements and the providence of a clarified image or information in regards to the
particular business has helped the stakeholders in taking the potential economic decisions.
However, there have been certain opinions in regards to the fact that the implications of adopting
the International Financial Reporting Standards have been negative in nature. This means that the
experts have been of the opinion that the financial report that has been prepared in accordance to
the reporting standards established by the International Financial Reporting Standards, has
resulted in the requirement of huge amounts of money especially in the preparation of the reports
accounting statements per the norms established by the accounting regulatory body. Moreover,
the preparers of the financial reports have also been of the opinion that the adoption of the
International Financial Reporting Standards have also resulted in the unnecessary disclosures in
the annual report of the corporate entity. This has lengthened the volume of the report and
increased the complexity of the financial information that has been reflected in it.
The qualitative characteristics of the financial report that can be attributed in order to
comply with the International Financial Reporting Standards are the qualitative characteristics of
relevance, understandability, timeliness and faithful representation. It must be noted here that
these are the reporting standards that have been further exploited or have resulted in the ruining
of the quality of the financial report. This can be evidenced from the fact that the qualitative
characteristics of faithful representation has reflected the overload of the disclosures in the
annual report of the corporate entity. This has increased the complexity of the accounting
statements and has resulted in the difficulty of the third party investors or the stakeholders of
business in interpreting the financial information from the annual report. The qualitative
characteristic of relevance has also resulted in the increase of the chances materiality or
misstatement in the books of accounts. Therefore, relevance is another qualitative characteristic

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that have ruined the quality of the accounting statements of the corporate entities. The qualitative
characteristic of understandability has also contributed to the increase in the volume of
disclosures and assertions in the financial report of the company. This has unnecessarily
increased the length of the report, increased its complexity and further resulted in the disclosure
of the information that is not required by the third party investors and the stakeholders of
business. Moreover, the compliance with the reporting standards have resulted in the engaging of
a huge amount of money. This means that the compliance with the International Financial
Reporting Standard has resulted in the increase in the operating cost of the corporate entity.
Lastly, the qualitative characteristic of timeliness have also further increased the complexity of
the accounting statements of the corporate entity. Therefore, the essentiality of the International
Financial Reporting Standards have been reflected in this particular answer and it has been found
out that there have been sufficient advantage to this reporting standard, however there have been
certain disadvantages to which the companies must cope (Ali, Akbar, & Ormrod, 2016).
Answer to Part B
The issue that has been represented in the question reflects the fact that the accounting
statements or the financial reports that are prepared by the corporate entities have been carried
out in compliance with the Corporations Act. The Corporations Act reveals the major criteria
that the corporate entities must be adhered to. This means that the Corporations Act states the
major requirements that should be adhered by the corporate entities on the basis of the fact that
the annual financial report of the companies that have been prepared reflect the major qualitative
characteristics like timeliness, comparability and other essential corporate report qualities. The
Corporations Act also states the regulations in accordance to the corporate social responsibilities
that should be carried out by a company. The question states the fact that the investigation of the
Corporations Act that had been conducted did not result in the addition of any further legislation
to the Act and the verdict that had been passed was that the regulation in regards to the corporate
social responsibilities of the companies would be dependent on the aspect of the market forces.
This can be further explained with the help of the theories that have been stated in the
question as follows:
 Public Interest Theory – the public interest theory refers to the particular theory that
reflects the fact that the working of the corporate entities should be carried out in regards

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to the welfare of the public. This means that the public interest theory has been prepared
in support of the public and indicates the fact that the corporate entities should carry out
the necessary operations for the purpose of the welfare of the public. The corporate
entities should look out at the environment of the surroundings in which the companies
are dealing in. Therefore, the adoption of the public interest theory will result in the
automatic regulation of the corporate social responsibilities that have been adopted by a
corporate entity. This is because the operations of the company will be directed towards
the social welfare of the public (Kim, Shi & Zhou, 2014).
 Capture Theory – the capture theory indicates the theory that the corporate entities that
have been dealing in a particular industry will result in the regulation of the operations of
the industry. This means that a bulk of companies that have been dealing in the similar
industry will ultimately capture the market and result in the maneuvering of the
regulations that have been existing in a particular industry. For instance, the energy
industry might consist of a bulk of companies that operate and carry out the similar level
of corporate social responsibilities. Now, a particular regulatory standard in regards to the
corporate social responsibilities might already be existing in the market, but all the
companies of the similar industry carrying out the same type of corporate social
responsibilities will result in the structuring of the social responsibility structure in the
same way. Thus, the market forces control the regulatory capture theory. Therefore, it is
totally matching with the requirement that has been presented in the question that the
legislations in regards to the corporate social responsibilities will be controlled by the
market forces. The regulatory capture theory will change the corporate social
responsibility structure in a way that matches with the current requirements of the market
thus resulting in the adherence of the market forces (Kim, Shi & Zhou, 2014).
 Economic Interest Group Theory – the economic interest group theory on the other hand
is similar to the public interest theory. This means that the economic interest group theory
reveals the particular way in which the operations that have been carried out by the
corporate entities support the welfare and the well-being of the economic groups. The
economic groups refer to the groups that are directly or indirectly affected by the working
of the operations of the corporate entities. This means that the compliance with the
economic interest group theory will result in the carrying out of the corporate social

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responsibilities that should be carried out by the companies. The economic interest group
theory is adopted by the corporate entities for the purpose of the fact that the corporate
social responsibilities of the companies are carried out at ease. The economic interest
group theory further supports the regulation of the corporate social responsibility
framework with the help of the market forces by mandating the companies to adopt the
operations that will improve the condition of the environment and the economic interest
groups. Therefore, it can be understood here that the companies that have been adopting
the accounting regulatory theory will result in the establishment of the corporate social
responsibility framework that has been regulated by the market forces (Kim, Shi & Zhou,
2014).
Answer to Part C
The issue that has been presented in the question reflects the fact that the US Financial
Accounting Standards Board does not allow revaluation of non-current assets to fair value, but it
does make it compulsory to account for the impairment costs associated with non-current assets
as per FASB Statement No. 144 Accounting for the Impairment or Disposal of Long-Lived
Assets.
Furthermore, it has been asked in the question whether these mandatory norms have
affected the qualitative characteristic of relevance and representational faithfulness or not. This
has certainly affected the qualitative characteristics of the financial report that has been prepared
by the corporate entity. This is due to the fact that the companies that have been issuing the
particular standard should have also mentioned the impairment loss or gain in the financial
statement of the corporate entities. Now, as the impairment method has not been mentioned in
the accounting statements of the corporate entities, this confuses the users of the financial
statements accounting statements because they find no basis of the impairment loss or gain.
Thus, it can be evidently stated here that the qualitative characteristic of relevance has been
hampered in such an action. This is because the users of the financial statements find no
similarity in the disclosures in regards to the impairment loss or gain and result in the increase in
the complexity of the annual report that has been prepared by the organization. Moreover, such a
practice also increases the chances of occurrence of the material misstatement in the books of
accounts accounting statements no particular disclosure has been provided in the annual report of

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the listed business entities of UK. Furthermore, it also complicates the process of preparation of
the financial reports accounting statements the accountant has to adhere to the current accounting
standard along with the accounting standards that has been established by the FASB. Thus, it can
be evidently stated here that the qualitative characteristic of financial reporting that refers to the
particular quality of representational faithfulness also has been hampered by this particular
practice. Thus, it can be concluded here that the adherence to the norm established by FASB
results in the non-compliance with the essential qualitative characteristics of a financial report
(Tsunogaya, 2016).
Answer to Part D
The issue that has been presented in the question refers to the fact that certain directors
choose not to value the assets like plant, property and equipment at fair value and choose to
value or measure the assets on the basis of the cost model. The directors do not opt for revaluing
the assets like the property, plant and equipment due to the fact that the revaluing process might
result in a loss that will be certainly reflected in the accounting statements of the corporate entity
and will reduce the profit that has been earned by the company throughout the financial year.
This will further result in the lowering of the goodwill of the firm in regards to the market in
which it has been operating.
Accounting statements mentioned earlier the effect on the financial statements would be
that the profit would increase in case of an impairment gain and the profit would reduce in case
of an impairment loss in regards to the valuation of the asset.
The decision of not revaluing the property, plant and equipment will affect the wealth of
the shareholders as the true reflection of the financial position of the corporate entity will not be
reflected in the annual report of the corporate entity (Tsunogaya, 2016).

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References
Ali, A., Akbar, S., & Ormrod, P. (2016, March). Impact of international accounting report
standards on the profit and equity of AIM listed companies in the UK. In Accounting
Forum (Vol. 40, No. 1, pp. 45-62). Elsevier.
Balsmeier, B., & Vanhaverbeke, S. (2018). International accounting report standards and private
firms’ access to bank loans. European Accounting Review, 27(1), 75-104.
Dye, R., Glover, J., & Sunder, S. (2014). How Can Accounting report Standards Resist
Accounting-Motivated Accounting Engineering?.
Graham, A., Nandialath, A. M., Skaradzinski, D., & Rustambekov, E. (2017). Macroeconomic
Determinants of International Accounting report Standards (IFRS) Adoption: Evidence
from the Middle East North Africa (MENA) Region.
Jibril, M. A., & Abubakar, M. (2016, October). Effect Of International Accounting report
Standards (Ifrs) On Corporate Financing In Nigerian Banking Industry. In Proceedings of
Economics and Finance Conferences (No. 4206880). International Institute of Social and
Economic Sciences.
Kim, J. B., Shi, H., & Zhou, J. (2014). International Accounting report Standards, institutional
infrastructures, and implied cost of equity capital around the world. Review of
Quantitative Finance and Accounting, 42(3), 469-507.
Lestari, D. (2015). The Effect OF Implementation OF Convergence International Accounting
report Standards (ifrs), Good Corporate Governance, And Disclosure OF Corporate
Social Responsibility (csr) ON Investor Reactions (in Manufacturing Companies Listed
ON Indonesia Stock Exchange Period 2011-2013).
Perkins, J. D. (2016). Discussion of “Security Returns and Volume Responses around
International Accounting report Standards (IFRS) Earnings Announcements”. The
International Journal of Accounting, 51(2), 266-270.
Sunder, S. (2016). Rethinking accounting report: standards, norms and institutions. Foundations
and Trends® in Accounting, 11(1–2), 1-118.

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Tsunogaya, N. (2016). Issues affecting decisions on mandatory adoption of International
Accounting report Standards (IFRS) in Japan. Accounting, Auditing & Accountability
Journal, 29(5), 828-860.